A pay-when-paid clause says the general contractor will pay the subcontractor within a set time after the GC receives payment from the owner for that sub’s work. It’s about timing. A related but different clause, pay-if-paid, makes owner payment a condition precedent, so if the owner never pays, the GC may not owe the sub at all. Enforceability varies a lot by state. Some states treat pay-when-paid as only delaying payment for a reasonable time, and some restrict or void pay-if-paid clauses entirely.
Why it matters
These clauses decide who carries the risk of an owner not paying. Subs need to know which one they signed. GCs need to know whether their clause holds up in the project’s state, and lien rights often still apply either way.
Worked example
Illustrative: Pay App #9 on Riverside Medical Center bills $2.31M for the period, with 10% retainage of $231,040 held. Suppose Volt Electric’s share of the payment is $410,000. Under a “within 7 days of receipt” pay-when-paid clause, if the owner pays the GC on the 30th, Volt is due by the 7th of the next month.
Common mistakes
- Assuming pay-when-paid and pay-if-paid mean the same thing.
- Not checking state law before relying on the clause.
- Holding sub payments for unrelated disputes and calling it pay-when-paid.
How os.construction handles it
We’re building payment tracking that links owner receipts to sub payables on the same pay app record, so it’s clear what is due to whom and when. It’s in development with founding contractors.